President Rafael Correa’s efforts to fast-track changes to the mining law appear to have been entirely fruitless.

LATINVEX SPECIAL
Analytica

The end came surprisingly soon. Major Canadian gold producer Kinross walked – or rather limped – away from its Fruta del Norte (FDN) project this week, in the midst of parliamentary debate on introducing some mining-friendlier legislation. "After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on FDN,” Kinross chief executive Paul Rollinson said in a public statement on June 10.

Kinross asked the Correa administration to cooperate “in ensuring an orderly transition that respects the interests of both parties.” Some industry lawyers read that part of the statement as a warning that it will seek arbitration, even as the company told shareholders that it would book a whopping $720 million loss for the current quarter. It still holds another 34 concessions surrounding the FDN project site, in a cluster stretching along the Peruvian border in the Zamora-Chinchipe province.

FDN holds a proven and probable 6.7 million ounces of gold and 9 million ounces of silver, with another 3.6 million ounces of gold and 7.3 million of silver inferred, making it a tantalizing deposit.

The project was underground, rather than the more environmentally damaging open-pit mining planned elsewhere in Ecuador. Correspondingly, the decision, almost two months before the deadline for an extension on Kinross’s exploration contract was to run out (August 1), came as a surprise, even though it was clear the negotiations were likely to be tough and go down to the wire. “Let's be clear; if you can't develop FDN, one of the highest grading big deposits out there, you can't develop anything in Ecuador,” wrote Inka Cola News, a Peru-based blog specializing in Latin American mining (this of course doesn’t apply to informal, illegal mining that governments have struggled to control in Ecuador and elsewhere).

The serious industry, which except for Dynasty Metals and Mining has been unable to establish production and hung on with minimal resources since the 2008 moratorium on major mining, has been shaken by the news.

Already, INV, a Canadian junior mining that took over Iamgold’s 3.3 million ounce Quimsacocha gold project near Cuenca last year in a share deal for just $20 million said that it is thinking about leaving as well, likely in a move to win reassurances from the government officials it says it will meet [this] week.

Even the Chinese companies environmentalists expect to move in to replace Kinross have hesitated to move towards completion of their projects, mainly Ecuacorrientes’s Mirador and San Carlos-Panantza copper mines.

On June 13, the parliament approved the changes to the mining law, with some elements that will ease investment in “mid-sized” mines.

In the near term however, the effort president Rafael Correa put into fast-tracking the changes to the mining law appear to have been entirely fruitless.

This commentary originally appeared in Ecuador Weekly Report published by Analytica. Republished with permission.